PHILLIPS

Philips Electrical Industries Of Pakistan Limited

ABSTRACT

The report gives detailed information about the supply chain of Phillips in Pakistan. It gives a brief over view of all the supply chain activities going in Phillips. Philips: a renowned company for innovations to bring changes in consumer's lives still has a strong position in their minds. Although there is a flood of cheap and low priced Chinese products in the market but still Philips has a positive response from the consumers, in terms of quality and reliability of product also.

This report gives detailed information about the supply chain of Phillips in Pakistan. It gives a brief over view of all the supply chain activities going in Phillips. In this report I have identified the problems faced by the company and have come up with recommendations to overcome these problems.

Supply Chain Management of Philips Company is trying harder to meet their regular demands in time and also emphasizing on sustainable good supplier-dealer relationship. Their Supply Chain management not only tracks their own department’s performance, but also works with their distributors and monitors their records to avoid any kind of mismanagement. Inventory Inventory management, management, which is the most critical critical and important important part of Supply Chain Management, Management, is handled with the modern tracking system of JD-Edward which is useful not only for the current physical inventory in warehouse, but also monitor the in-transit goods and distributors and suppliers status of work. In general, the workflow in Philips is mostly written and well defined. So the employees know their jobs very clearly and are able to maintain the workflow in required manner. They don’t have any system of detecting defect at the place, except in glass factory, but quality control at every step makes these products reliable and durable.

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INTRODUCTION The foundations for what has become one of the world's biggest electronics companies were laid in 1891 when Gerard Philips established the company in Eindhoven, the Netherlands to manufacture incandescent lamps and other electrical products. Today, Royal Philips Electronics Electronics is ninth on Fortune's list of global top 30 electronics corporations with sales of EUR 32.3 billion in 2001. Philips, a giant of the worldwide worldwide electronics industry, started started its business in Pakistan Pakistan in 1948. Within these fifty-five years of operations in Pakistan, Philips has grown into one of the leading companies involved in Consumer and Professional Lighting, Electronic Goods and Domestic Appliance Products, and employed over 382 skilled people of Pakistan. In beginning, Philips started its operations in here dealing with only a few consumer domestic products like Light Bulbs and Radio. The Light Bulb and radio opened an opportunity to an even brighter future for Philips in Pakistan. Today Philips Pakistan has a strong position in Pakistani market as well as in the mind of the consumers. Its business operations have spearheaded further to include, local assembly and manufacturing of Electrical and Electronic Products. It is evident that the company has achieved a recognizable status as a major Business Unit of Electronic Products and a net contributor to the Pakistan Economy.

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Mission Philips has reinvented itself many times, but through it all our core, the soul of our company, remained intact. That is because it was part of our company since its inception in 1891. It is the passion to… "Improve the quality of people’s lives through timely introduction of meaningful innovations."

Vision In a world where complexity increasingly touches every aspect of our daily lives, we will lead in bringing sense and simplicity to people

Values • • • •

Delight customers Deliver on commitments Develop people Depend on each other

Brand Promise We empower people to benefit from innovation by delivering on our brand promise of “sense and simplicity” This brand promise encapsulates our commitment to d eliver solutions that are advanced, easy to use, u se, and designed around the needs of all our users.

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VISION 2010 Philips is on a journey to transform itself into a truly market driven and people centric company. This involves a strategy that aims to grow the company further in the areas of Healthcare, Lighting and Consumer Lifestyle. As part of its "Vision 2010" strategy, Philips has simplified its business structure to align with this strategy by creating three core sectors as per January 1, 2008: Philips Healthcare, Philips Lighting, and Philips Consumer Lifestyle.

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Vision 2010 aims to fuel growth through sharpened strategies for Healthcare and Lighting, as well as an integrated approach for Consumer Lifestyle.

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Vision 2010 positions Philips as a market-driven company, people centric with a structure that matches the needs of our customer base. Vision 2010 confirms we’re a company focusing on three market sectors: Healthcare, Lighting and Con sumer Lifestyle.

As a result of Vision 2010, Philips has announ ced it expects higher levels of operating op erating profitability. By 2010, Philips expects to more than double its EBITA per share compared to the level expected in 2007.

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SCM – SUPPLY CHAIN MANAGEMENT STRUCTURE AT PHILIPS LIGHTING SCM at Philips – Lighting is comprises of following Sections / Divisions:

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Procurement and Planning.

•

Purchasing.

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Vendor Management.

•

Logistics

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ORGANIZATIONAL STRUCTRE

Sr. Director Lighting

Supply Chain Manager

Dy. Manager Outbound Logistics

Manager Purchasing & Vendor Management

R/M Store Officer Deputy Manager Purchase Manager Planning & Customer Services

Purchase Officer

Procurement Officer

Vendor Officer

Procurement Officer (Local)

Quality Officer (Vendor)

Planning Assistant

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PHILLIPS DISTRIBUTION DISTRIBUTION SCHEDULE AT THE WHOLESALE LEVEL

Order (place by Whole Seller)

Manufacturing

Warehousing/ Distribution

Transportation

Received by Whole Seller

Payments

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TRANSPORTATION TRANSPORTATION STRUCTURE

Manufacturing Unit of Philips

Warehouse

Self Distribution Network

Whole Sellers

Factory outlet

Places can not be covered by company Consumers

Retailers

Consumers

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Consumers


SUPPLY CHAIN MANAGEMENT TOOLS: 10

Philips Electrical Industries Of Pakistan Limited Supply Chain Activities are controlled by organized planning tools like:

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Demand Planning / Annual Operation Plan (AOP).

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Monthly Sales Plan

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Historical Database (Production Capacity Planning)

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PCL plan (production, commercial, logistics)

DEMAND PLANNING / ANNUAL OPERATION PLAN (AOP)

The demand planning meeting is held every month in which all the line mangers like sales, production, purchase etc are involved which are headed by the supply chain manager.

MONTHLY SALES PLAN

Monthly Sales Plan is design to forecast the annual demand and supply of sales.

HISTORICAL DATABASE (PRODUCTION CAPACITY PLANNING)

Historical databases are responsible for the production planning.

PCL PLAN (PRODUCTION, COMMERCIAL, LOGISTICS)

PCL plan meeting is held at every month in which line mangers of production, commercial and logistics participate to plan the production forecast sales forecast a nd raw material planning.

Supply chain processes by implementing the following attributes to their systems.

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Philips Electrical Industries Of Pakistan Limited They have their own order desk it means that based orders of customer, cu stomer, production is planned • accordingly •

Procurement and delivery planning is to increase the efficiency of fulfilling orders

SUPPLIER RELATIONS

Philips vendors are divided into following categories Global and local. While global vendors provide already finished good but as far as local vendors are concerned they provide packaging material and spares while glass shells .coils wires and gases are produced locally. Philips Management believed that for good supplier relations communications is very important. They share lot of vital information to their supplier’s customer orders to improve vendor relationships. Vendor Management Section is responsible for maintain Supplier Monitoring and ratings based on order fulfillment, lead time and efficiency and provide different promotions and favors.

MATERIAL REQUIREMENT PLANNING (MRP ).

They do material planning based on demand forecast and customer orders, they maintain different lead times for different customers according to their value. When Philips selected APEX to supply it with product, Philips urged APEX to implement an MRP system so Philips would have the confidence that APEX would be able to meet its on-time commitment to Phili Philips. ps. After After evaluat evaluating ing the curren currentt offeri offerings ngs,, Philip Philipss select selected ed E-Z-MR E-Z-MRP P as ideal ideal for APEX's APEX's operation. APEX acquired the system through Unity World Class Corp's Taiwan branch. Philips also required APEX to implement Nocturne from Healex Systems, both to accept Philips requirements for product from APEX as a supplier, and to communicate APEX's raw material requirements to its own suppliers. A simple enhancement to the E-Z-MRP system was created by Beach Access Software to export the information required by Nocturne Nocturne to inform APEX's suppliers suppliers of APEX's requirements for raw-

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Philips Electrical Industries Of Pakistan Limited -materials. The program runs automatically each night and creates text files in Nocturne's format to communicate supplier information, part descriptions, inventory transactions, and a weekly bucketed demand forecast for each part.

This information is all the data Nocturne needs to inform each of APEX's suppliers of what they should be shipping to APEX and when, so that APEX will have the raw materials on hand to meet its commitments

to

deliver

finished

product

to

Philips.

Both systems were implemented in a matter of weeks and are currently providing Shanghai Apex Electr Electronic onicss with with integr integrate ated d manufa manufactu cturin ring g and supply supply chain chain manage managemen mentt syste systems ms unusual unusual for a company its size. The supply chain flows from Philips SAP system through Nocturne to APEX's E-ZMRP system, and from E-Z-MRP through Nocturne to APEX's suppliers. APEX's experience proves that that it isn' isn'tt nece necess ssar ary y to be a larg largee manu manufa fact ctur urer er in orde orderr to take take advan advanta tage ge of the the incr increas eased ed competitiveness and profitability that sophisticated supply chain techniques provide.

ORDER FULFILLMENT

(Customer er Service Service Level Level ) to Supply Supply Chain Chain Managem Management ent Depart Departmen mentt of Philip Philipss mainta maintains ins CSL (Custom

improve efficiency in their order fulfillment. They calculate their order fulfillment level on which number of Customer Orders received, how many of the orders are fulfilled. Philips Lightening maintains 97% of order fulfillment level in the lighting order delivery.

CYCLE TIME

Philips maintain cycle time and reorder level for regular items(locally purchased but not for valuable items that are import outside. the categorization of items is made through abc analysis in A category they have items imported from outside .they give C category to locally purchase items. They also do MOQ (material order quantity).

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Philips Electrical Industries Of Pakistan Limited COMPLAINS/REPLACEMENTS

Quality assurance department is responsible for complains and replacements based on customer feedback.

Typical supply chain comprises of the following flow.

Philips Pakistan

Supplier

Manufacturing

Dealer/Distributor

Retailer

Consumer

SCM SCOPE AND ACTIVITIES

In Philips Pakistan, managing Supply chain is the most critical part. Especially in the case of Consumer Electronics and Domestic Appliances and Personal Care, where the company is just engaged in imports of demanded goods, the efficient and smart supplies and proper distribution network is essential.

While as far as lighting division is concerned, there are manufacturing activities in full strength and providing right material, at right time, and in right quantity is most important. There are some parts of manufacturing processes, which needs continuous flow of work because of there nature, it become necessary to maintain their flow of manufacturing and maintaining its raw material as well as its FG inventory at adequate level of consumption. This is only possible when the production and supply managers can manage timely activities.

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SCM IMPLEMENTATION OVERVIEW

Lighting Manufacturing Activities

Lights manufacturing activity is started from purchasing of different parts of bulbs and tube lights, which are being made in the facility of Philips Pakistan. Production process starts from Flair cutting machine, from where filament of a bulb has started to be made. Then there is stem machine, which needs ready flairs to form stems, then to mount it and then to prepare Molly Wire, and after pumping step, where filament is fixed in bulb’s shell, cap is fixed on it. During the whole series of steps, we saw a demand pull for every previous step to provide required amount of item at right time. The whole process was in very timely sequence and to check the final product, there were some other people and machines to verify the status of bulb, either it are perfect or have any defect. Each and every item is checked at the last stage of production as per quality standards. More or less the same process was for tube light making, but the machines were quite different. From flair cutting to pasting caps on both sides of tube light, there were several steps like; Coating, Sundering, Sealing, Wiping and Pumping. The last step was checking the tube lights. Because when the light is not turned on within eight seconds, they put a green mark on it and send here to save time of production flow. Here we check it and if it is right then we forward it other wise throw it in our recycle store.” Third major department of Lighting Division is Glass factory. This glass factory is responsible to provide shells for tube lights. Few years back, there was a plant of making bulb shells also but now because of increasing labor expense, company closed this plant and now purchasing it from the market. However, this glass factory produce shells 24 hours of the day and 7 days a week because if there will be any break in production, the glass material may become damaged. There was recycling store behind this glass factory where all rejected bulbs and tube lights were stored and from there these are brought brough t to the furnace for turning it into liquid glass once again.

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CONSUMER ELECTRONICS AND DOMESTIC APPLIANCES & PERSONAL CARE DIVISION Philips Pakistan is now involved in trading of Consumer electronic (CE) and Domestic Appliances & Personal Care (DAP). They forecast the demand and send orders according to it, to the mega factories located in their regional Hub. To forecast the demand, Sales Personnel follow the turnover of their dealers and present their findings to the manag ement, to forecast the future demand. Pakistan is divided in 11 zones of sales. The zonal Sales Officers are responsible to take input from dealers to prepare forecast for next order.

PLANNING HORIZON

M+2 (where M= current month) Revise plan each month but have to send order before two months due to lead-time of at least two months. The meeting is held on first Sunday of every month, where sales officers and managers analyze the demand and forecasts and prepare suggestions to present in top management meeting. While Factory Planning is on weekly basis and W+3 method s used over there. (where W = week)They week) They adjust their supply plans every week to ensure the in-time deliveries of order.

PLANNING METHOD

Bottom up approach means to take input from the last member of marketing channel.11 Zonal sales officers take input from dealers of their areas in last days of the month (3rd week). These zonal sales officers coordinate with the dealers and distributors with their planning and forecast and on the basis of their turn over and capacity, prepare p repare their own forecast to send to the management. Top down method is related to the analysis part of forecasts provided from area sales managers. It is also called called Monthl Monthly y Planni Planning ng review review.. Market Marketing ing Manage Manager, r, Nation National al Sales Sales manager manager,, Financ Financee Manage Manager, r, Supply Chain Manager and GM attend the meeting and report from sales people is considered to forecast the demand.

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Philips Electrical Industries Of Pakistan Limited PLANNING TOOLS

Filocity Software: to send and update orders to the regional headquarter, Singapore. Filocity is the software to communicate with the regional headquarters, Singapore. One can browse in detail to access the required category or a particular product to order. But it is necessary order the item before three months at least, due to its lead-time, other wise the cell is seized automatically and can’t be changed. Every item has its limited quantity, which is shown in column and at that particular time, order can’t exceed from it. Filocity is also used to calculate MOQ (Minimum Order Quantity), Container Load, Transit time of goods, and Custom Clearance. To keep in touch with the regional mega factories, Philips Pak. is using “JD-Edward” system. Files sent daily to the main office from 11 pm to 12 to adjust the supplies with current needs. Although it is a very big organization and it was surprising to hear that they don’t have ERP system, “Philips actually don’t have need for the SAP implement. Even in India where our 4 factories are installed, they are also using the same system to communicate with the Singapore management. Anyways now we are going to implement ERP .It is being establishing in India now a days and by the 2007, we’ll go for SAP in Pakistan also”.

INVENTORY TIME PERIOD In Lightening Division The maximum time for inventory is 21 Days; they also realize the fact that inventory is nothing but inefficiency. They also told us that they have done priority ABC Analysis for their items.

All the imported items are assigned the A category while local items are characterized as B or C category. Reorder Level and Minimum Order Quantity is set only for Local Items because more Decision making is involved for Imported Items.

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Philips Electrical Industries Of Pakistan Limited For Consumer Electronics (CE), they carry the inventory for just one week. The inventory order time is 40 days from which 30 days are needed for transition of goods. While inventory has to be kept for 10-11 days and the safety stock has to keep k eep of one week (to manage any emergency situation).

To gather information about demand, there is a CMI (Consumer Marketing Intelligence). In which sales person personss collect collect the inform informati ation on about about consume consumerr insigh insights, ts, compet competiti itive ve environ environmen ment, t, technol technologi ogical cal changes, and current scenarios like seasonal changes or intensiveness. These factors directly affect forecasting the demand.

RELATIONS WITH DISTRIBUTORS / DEALERS The dealers prepare plans for their future sales and coordinate it with company’s forecast procedure. For the best coordination of time and delivery of goods between dealers and the company, they educate their dealers and share information to them. Sales managers keep in touch with the distributors and make them aware of upcoming events and the new products of company. To meet with their target sales, they keep monitor their weekly sales and strategies to ensure smooth sales progress in whole months. It helps dealers and the company to avoid uneven procedures for sales like low sales in first and second week while to achieve target, they start pushing the product in the market and create unfavorable situation for retailer and consumers.

MAJOR DISTRIBUTORS

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Synergy: Islamabad.

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Vital Computers: Karachi.

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Star Computers: Lahore.

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FORWARD \ BACKWARD INTEGRATION

They prepare Blast (Raw Material) Material) within within their own factory, factory, while their major distributors distributors are mostly mostly outsourced. For raw material, they have local and foreign vendors.

WAREHOUSE There are two large warehouses in the premises of Philips Pakistan. One is to store imported goods like TV, Audio/ Video Systems, MMDs, Domestic and Personal care appliances, etc. While other is to store the locally manufactured goods such as Bulbs, Tube lights, automotive lights, and other acc essories. There are large and very high warehouse in which extra space till ceiling is considered as the waste. waste. As these are constructed very old, that’s why company has to bear this wastage of space and it can’t be utilized.

SUPPLY CHAIN PLANNING TOOLS / SOFTWARE’S Currently Philips is using JD ADVERD based software to manage their inventories and supply chain management. They also told that they are planning to implement SAP- ERP system.

Implementation of SAP ERP System:

Phase 1: In the first phase SAP is implemented in Consumer Electronics division. Phase 2: Lightning Division is automated in the second phase.

COMPETITION •

In Ligh Lighti ting ng prod product ucts: s: Low Low pric priced ed Chine Chinese se produ product ctss like like Osak Osaka. a.

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MARKET SHARE •

More than 60% share in lights lights market. market.

CUSTOMER SEGMENTS

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Househo Household ld custom customers ers..

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Businesses related to the food and services like restaurants and medical institutions.

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Corporation Corporationss and instituti institutions ons for for professional professional equipments. equipments.

PROBLEMS

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Lack of distribution to the retailers

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They should reduce the lead time of their shipment, as some of their products are imported from Denmark they doesn’t reach on time to the distributers

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Their prices are high as compare to other brands

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The energy savers are always short in market

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They should work on their marketing side like do advertising of their new products

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They don’t have any system of detecting defect at the place, except in glass factory,

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RECOMMENDATIONS

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Phillips should manufacture all their products in Pakistan so that they can be available to the customers whenever they want

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People are not aware about the health care products of Phillips so they should bring some awareness in them through advertising

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They should give special discounts to their regular customers for brand loyalty

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They should higher some qualified qualified personnel who can bring new ideas and manufacture manufacture all the products in Pakistan

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Currently they are not using SAP and ERP so we recommend that they should start using it

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They should use MPS system which will help them to identify the forecasting factor of each production plan. The MPS indicates the shortage or the excess of the finish goods; it’s a kind of forecast forecast through which you can have a finish good picture picture for a specific Production Production plan or the requirements of upcoming production

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CONCLUSION This report is objectively prepared to know how they are working according to the new era of supply chain management. How they utilize their resources, manpower, and capacity. How they plan to work effectively for their supply chain process which includes material management, logistics management, procurement, warehousing, and effective supply of finished goods to the customers. Philips, a giant of the worldwide worldwide electronics industry, started started its business in Pakistan Pakistan in 1948. Within these fifty-five years of operations in Pakistan, Philips has grown into one of the leading companies involved in Consumer and Professional Lighting, Electronic Goods and Domestic Appliance Products, and employed over 382 skilled people of Pakistan. Now, when it has to close its CE & DAP manufacturing in Pakistan, Philips still has a vast range of quality products to manufacture and providing its customer from its mega factory. During the visit it was revealed that the company is striving hard to attain its lost leader’s position and for this purpose is emphasizing on innovation rather that following the market trends. As Philips introducing not only new products, but providing services to the organizations and institutions for installing lights in a new and enhancing way but offering trainings for lighting and their installation services.

In general, the workflow in Philips is mostly written and well defined. So the employees know their jobs very clearly and are able to maintain the workflow in required manner. They don’t have any system of detecting defect at the place, except in glass factory, but quality control at every step makes these products reliable and durable.

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LOCATION OF OFFICE & PLANT Philips Pakistan

Philips Electrical Industries of Pakistan Limited F-54, SITE Karachi 75730 2560071-82, 2579315

REFERENCES

Mr. Qazi Sales Manager

Mr.M. Tahir Retailer

Mr. M.Faisal Retailer

http://www.philips.com.pk/ http://www.philips.com/about/company/missionandvisionvaluesandstrategy/index.page http://www.lighting.philips.com.pk/pk/en/Portal?xml=knowledge/trends

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PHILLIPS

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